Also called "Muni"
Bonds issued by state or local government entities, including counties, cities, and utility districts, are termed municipal bonds. Corporate bonds, by contrast, are issued by private companies, and the federal government issues Treasury bills, notes, and bonds.
Federal law allows state and local governments to issue federally tax-exempt municipal bonds within certain limitations, such as that the proceeds must be used for public purposes suchas constructing a state or local government office building.
Because municipal bondholders keep more of the interest earned rather than paying a portion in taxes, a municipal bond with a lower yield is equivalent to a federal or corporate bond with a higher yield. As a result, state and local governments can typically issue bonds with lower interest than their federal or corporate counterparts, and thus save money on debt service.